Newspaper of the year Inside Jancis Robinson's favourite ports and sherries I Life & Arts Page 4 How Starbucks ground to a halt A. FT Magazine Cover Story mi Tyler Brule unveils the club sandwich index Jj^m^ Life & Arts M H M Back Page M • JH News Briefing EU urges world to follow its climate lead EU leaders urged the world to follow their example and adopt COMPANIES & MARKETS PAGE 17 The humbling of David Ross The Carphone founder's week from hell US signals rescue of Detroit carmakers Scramble after Senate rejects bail-out loans White House prepares ground for U-turn By Daniel Dombey in Washington, John Reed in London and Bernard Simon in Toronto The US administration was last night scrambling to save Detroit's troubled car industry, as General Motors said that it was closing most of its North American manufacturing plants for the month of January in the wake of the Senate's failure to about 5,000 people in the UK, is close to running out of the cash necessary to keep its operations going. GM's bonds fell to a new low of 9-10 cents on the dollar on fears of a bankruptcy, before recover- ing to 15 cents on the news that the Bush administration was looking for other financing. Markets in Hong Kong and Tokyo fell by more than 5 per cent, while London was down 2.47 per cent. For weeks George W. Bush, the US president, has resisted using the $700bn troubled asset relief programme to provide aid to the carmakers, artrulnu that tiuch an FINANCIAL TIMES | Saturday December 13/Sunday December 14 2008 1 £230 MONEY SEPARATE SECTION Safe Havens: a Money guide Where to look for the best returns orld Business Newspaper Horlick fund faces losses in Madoff 'big lie By James Mackintosh in London and Joanna Chung in New York Some of the biggest-name fund managers in the world, including Nicola Horlick, Man Group, Santander and Union Bancaire Privee, have been caught up in an alleged $50bn (£33bn) fraud after trusting Bernard Madoff, the Wall Street trader arrested this week. Many wealthy investors in Switzerland, Spain, Israel and Austria, in particular, were tempted to invest in funds which produced such steady returns that sceptics believed them too good to be true and in what could potentially be the biggest fraud in corporate history. The case now threatens to create panic among investors and exacerbate withdrawals from hedge fund managers already struggling to raise enough cash to meet redemptions. Mr Madoff, who was released on Thursday on $10m bail, told senior employees - including his sons that his operations were Bernard Madoff was arrested this week and released on $10m bail hedge funds, has more than $lbn invested with Mr Madoff, while the biggest single exposure appears to be Fairfield Green- wich Group, a US asset manager which runs a $7.28bn fund managed by Mr Madoff. Two funds from Pioneer Invest- ments, an arm of Italy's UniCredit, had "substantially all" of $835m invested with Madoff. Many hedge fund experts were
Transcript
N e w s p a p e r o f t h e y e a r
Inside Jancis Robinson's favourite ports and sherries I Life & Arts Page 4
How Starbucks ground to a halt A. FT Magazine Cover Story
mi
Tyler Brule unveils the club sandwich index Jj^m^ Life & Arts M H M
Back Page M • J H
News Briefing EU urges world to follow its climate lead EU leaders urged the world to follow their example and adopt
COMPANIES & MARKETS PAGE 17
The humbling of David Ross The Carphone founder's week from hell
US signals rescue of Detroit carmakers Scramble after Senate rejects bail-out loans White House prepares ground for U-turn By Daniel Dombey in Washington, John Reed in London and Bernard Simon in Toronto
The US administration was last night scrambling to save Detroit's troubled car industry, as General Motors said that it was closing most of its North American manufacturing plants for the month of January in the wake of the Senate's failure to
about 5,000 people in the UK, is close to running out of the cash necessary to keep its operations going.
GM's bonds fell to a new low of 9-10 cents on the dollar on fears of a bankruptcy, before recovering to 15 cents on the news that the Bush administration was looking for other financing.
Markets in Hong Kong and Tokyo fell by more than 5 per cent, while London was down 2.47 per cent.
For weeks George W. Bush, the US president, has resisted using the $700bn troubled asset relief programme to provide aid to the carmakers, artrulnu that tiuch an
F I N A N C I A L T I M E S | Saturday December 13/Sunday December 14 20081£230
MONEY SEPARATE SECTION
Safe Havens: a Money guide Where to look for the best returns
o r l d B u s i n e s s N e w s p a p e r
Horlick fund faces losses in Madoff 'big lie By James Mackintosh in London and Joanna Chung in New York
Some of the biggest-name fund managers in the world, including Nicola Horlick, Man Group, Santander and Union Bancaire Privee, have been caught up in an alleged $50bn (£33bn) fraud after trusting Bernard Madoff, the Wall Street trader arrested this week.
Many wealthy investors in Switzerland, Spain, Israel and Aust r ia , in par t icular , were tempted to invest in funds which produced such steady returns that sceptics believed them too good to be true and in what could potentially be the biggest fraud in corporate history.
The case now threatens to create panic among investors and exacerbate withdrawals from hedge fund managers already struggling to raise enough cash to meet redemptions.
Mr Madoff, who was released on Thursday on $10m bail, told senior employees - including his sons that his operations were
Bernard Madoff was arrested this week and released on $10m bail
hedge funds, has more than $lbn invested with Mr Madoff, while the biggest single exposure appears to be Fairfield Greenwich Group, a US asset manager which runs a $7.28bn fund managed by Mr Madoff.
Two funds from Pioneer Investments, an arm of Italy's UniCredit, had "substantially all" of $835m invested with Madoff.
Many hedge fund experts were
said their plan conceded too much to big polluters. Page 9
Shell's pension dip Investments in Royal Dutch Shell's Dutch pension fund have dropped 40 per cent since the start of the year and the scheme has fallen far short of the regulatory minimum requirement. Page 15
'Hostile9 Schaeffler Schaeffler's takeover of German car-parts supplier Continental looked set to turn hostile after news it was prepared to back out of an investor deal. Page 21
Russia recession fear Russia is facing a recession that could last more than two quarters, the deputy economy minister said, the first time a senior official has said the economy is contracting. Page 8
China 3G movement China will issue licences for third-generation mobile telecoms services by the start of 2009 and expects this will generate Rmb200bn (£19.6bn) in investments from the groups, the regulator said. Page 21
WTO talks stalemate The WTO has dropped plans to convene ministers to push for an outline deal in the ailing global trade talks, another blow to world leaders' promises to fight protectionism. Page 10
Estate agents act Estate agents are learning from retailers with a Christmas sale in which as much as a third has been knocked off some homes to stimulate the stalling market. Page 15
Tailed 9 German rescue Germany's banking rescue has failed and should be modified if damage to the economy is to be avoided, the MPs who oversee the €500bn (£449bn) of funds warned. Page 9
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was ready to step in with funds intended to prop up the financial system to prevent the biggest industrial failure in US history.
"Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," the Treasury said.
In Britain, ministers were considering extending a lifeline to Vauxhall, a GM subsidiary, after it offered staff at its Ellesmere Port plant in north-west England sabbaticals of up to nine months at 30 per cent of their salary.
GM| America's largest domestic carmaker, which employs
the collapse of one or more oi Detroit companies, the Whi House indicated it had few other options.
"A precipitous collapse of this industry would have a severe impact on our economy," said Dana Pe r ino , Whi te House spokeswoman.
Car industry lobbyists said up to 3m jobs and lm pensioners could be affected by the collapse of the US domestic motor industry.
Additional reporting by Michael Mackenzie in New York
Crisis in Detroit, Pages 6&7 Lex, Page 28 www.ft.com/detroit Nicola Horlick had three funds invested in Mr Madoff s Charlie Bibby
Santander cuts Competition watchdog to stand firm on sale of airports by BAA
if Spanish bank Santander is to cut 1,900 jobs in the UK next year as it integrates the acquisitions that have made it one of the largest lenders in the country. The job losses, about 8 per cent of UK staff, come after Santander this year bought Alliance & Leicester and the branches and deposits of Bradford & Bingley, the failed mortgage lender, to add to its acquisition of Abbey.
Report, Page 15
Disposal of three sites set to be confirmed
By Michael Peel and Kevin Done
BAA, the embattled owner of Heathrow, faces a firesale of two of its leading British airports after failing to persuade competition investigators that disposing of Gatwick alone would curb its allegedly harmful dominance of the sector.
The Competition Commission is next week due to reject lobbying by the company against a plan to make it sell at least two of its three London airports and one of either Glasgow and Edinburgh, people familiar with the investigation say.
The demands on BAA, which has already begun an auction of Gatwick, will put it on a collision course with the commission ahead of publication of the final results of the probe by March.
The commission's latest
inter im report will echo i ts earlier criticism of BAA - a subsidiary of Ferrovial, the Spanish construction and infrastructure group - as dominating an airport network that has hurt airline and passenger interests.
The watchdog will confirm its recommendation for BAA to sell the three airports in Scotland and London, where it also owns Stansted. The company is estimated to enjoy 84 per cent of passenger traffic in Scotland and 90 per cent in the south-east of England.
The commission's proposed order would leave BAA with the unwelcome choice of launching an expensive appeal or else selling Bri t ish a i rpor ts jus t as passenger numbers fall steeply.
The company said yesterday that overall passenger traffic at its seven British airports fell last month by 8.9 per cent year-on-year, the biggest decline since just after the September 11 2001 terrorist attacks. Numbers at
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both Gatwick and Stansted fell more than 13 per cent.
Ferrovial is seeking indicative bids for Gatwick by next month in an ambitious sales schedule that aims to bring the deal to an advanced stage before the company's room to manoeuvre can be curbed by the commission's final ruling.
At least five consortia - which include infrastructure funds, pension funds and rival international airports - are considering bids in an auction tha t analysts say could raise £2bn.
BAA has attacked the commission's plans as "flawed" and likely to create "uncertainty, delay and confusion at exactly the wrong time". The company has argued that the break-up proposal would undermine efforts to add more runway capacity in the highly congested south-east of England.
Both BAA and the Competition Commission declined to comment.
On FT.com today
A soap story Slideshow: how WaterAid is helping to reduce disease
Ms Horlick, dubbed "super-woman" while running Societe Generale's asset manager, reported three funds amounting to 9.5 per cent, or about $25m, of her listed Bramdean Alternative* were invested with Mr MadofTs securities firm. Shares in Bramdean, in which property tycoon Vincent Tchenguiz is an anchor investor, tumbled more than a third to 423/4p.
Man Group's RMF division has about $350m invested in funds which outsourced their management to Madoff securities, although this is a tiny fraction of the division's $25bn of assets. Tremont, a large US fund of
tancy Aksia, said in a client letter there were a "host of red flags" which had led him to recommend avoiding the dozen or more funds linked to Mr Madoff.
According to regulatory filing* in January, his investment advisory business served between 11 and 25 clients and had about $17.1bn in assets under management. It was unclear yesterday whether the $50bn loss estimated by Mr Madoff was correct.
Mr Madoff could face up to 20 years in prison and a $5m fine on the securities fraud charge.
Reports and analysis, Page 20 Lex, Page 28
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ing rising unemployment as a result of the financial crisis and sharp economic slowdown.
Thousands of jobs are also expected to go as a result of the merger of Lloyds TSB and HBOS, which HBOS approved yesterday.
Most of the job losses would arise from transferring A&L and B&B's systems on to Santander's proprietary computer platform, called Partenon. It will also
eliminate back office and support jobs across the three banks.
Santander said there would be "minimal" impact on employees who deal with customers through branches and call centres.
The bank has almost 1,300 branches across the UK and is expecting to maintain that network.
When i t b o u g h t A&L in July, Santander promised cost savings of
£180m by the end of 2011. Anton io Hor ta-Osor io ,
chief executive of Santander's UK operations, said: "Santander is committed to continuing the growth of its UK businesses profitably and has already shown through Abbey that it can drive efficiencies in operational areas in order to grow its retail business and provide customers with greater value-for-money products."
Santander has taken
advantage of the credit crisis and the withdrawal of competitors to expand its UK mortgage lending.
The bank yesterday said it was also accelerating its growth plans in lending to small and medium-sized enterprises.
The combined business has already increased lending by 25 per cent so far this year, and is planning to extend its product range and recruit up to 100 small busi
ness advisers for the Abbey branch network.
Santander transferred its operations to the Partenon system following the acquisition of Abbey.
The platform, developed in Spain and deployed across large parts of Santander's network, allows bank employees to view the bank's entire relationship with a particular customer, helping them to sell a broader range of products.
d debts as hareholders takeover
igues and I do not f recommend the trans-is that we are here to m today. I should say jerry I am about what ippened and in particu-
pact first on sharers." i Stevenson reminded tors that he himself put Elm into H B O S I D the past year. "You t ask what kind of p is that?" he said. I merged group will
a balance sheet of £1.000bn and be the
it provider of current ints, mortgages and ess banking in the UK.
ell-known figure at
B making d share placing likely ve the government ip to 40 per cent of : ~Dined entity, mber 8: Sir Peter former chief of Bank jttand, and Sir George swson, ex-chairman of Bank of Scotland,
i a campaign to keep » independent, mber 19: Lloyds holders approve the /er. mber 2h Burt and »wson abandon their aign. mber 10: HBOS solders calling selves Merger Action i fail to scupper the n the courts, mber 12: HBOS holders vote through sal.
the meeting who was greeted by a number of shareholders was Mike Blackburn, the former chief executive of Halifax, who demutalised the building society in the 1990s.
Speaking before the meeting, Mr Blackburn said that this was not what he envisaged when Halifax floated, although he pointed out that a number of banks had faced similar difficult positions.
"I don't think you can put all the blame on what has happened in the US," he said. "HSBC, for example, has not had recourse to government money. There is a benefit to banking being boring. Banking is as much about saying no as saying yes."
HBOS said the bank ' s exposure to commercia l proper ty and re ta i l had caused the impairment charge in its corporate loan book to rise a further £1.6bn from the £1.7bn figure given at the end of September.
HBOS as a group is expected to take writedowns of £8bn through its profit and loss account in 2008.
Alex Potter, analyst at Collins Stewart, said the performance had been worse than expected, particularly given the fact that HBOS had updated the market in early November.
He added t h a t i t had reduced confidence in the UK bank sector.
Sandy Chen, analyst at Panmure Gordon, said HBOS could now report a £2bn loss in 2008 and bigger losses in 2009. "This is a large crisis.
Protest: members of the Unite union hand out leaflets outside the HBOS meeting yesterday
This can be read across not only to HBOS's likely acquirer Lloyds but to all the UK banks, in our view," he said.
Lord Stevenson told investors who gathered at Birmingham's NEC that HBOS had little alternative but to accept the all-share takeover from Lloyds TSB given the "recessionary gale" raging in the UK.
He dismissed suggestions that it would have been better for HBOS to remain as an independent company.
A group of p rominent Scottish business people, including Sir Peter Burt, former chief executive of Bank of Scotland, had pushed for this, fearing large job losses in Scotland after the merger.
Lord Stevenson said that it
was by no means certain that the government money would have been available to a standalone HBOS.
"We do not lightly concede our independence," he said, adding that HBOS had received no other approaches apart from Lloyds'.
Shareholders pressed the HBOS board on why the bank had been brought to its knees.
One investor, Peter Hack-worth, said he was "appalled" the board had "turned a £50bn company into a basket case in 12 months". He called on the board to return bonuses they had received in previous years.
Mr Hornby told investors he had lost s u b s t a n t i a l amounts of money because
he had ploughed back bonuses into HBOS shares that had fallen in value by more than 90 per cent.
Lord Stevenson added: "Andy Hornby has put every single cent of his bonuses into the company's shares -not into yachts and grand houses." • Trustees to the HBOS pension scheme are to meet next week to consider whether to call for a full valuation of the £7bn scheme, a move that could force Lloyds TSB to pay much higher contributions after it acquires the HBOS business, writes Norma Cohen.
This is because the valuation would use much more conservative assumptions about investment returns and risks.
Trustees decided to meet
PA
after Lloyds TSB refused to provide a full guarantee of all retirement liabilities once the HBOS business is acquired. Trustees are concerned tha t the scheme, which has 74,000 members, will be left without any corporate sponsor if Lloyds TSB reorganises the business.
Lloyds TSB pointed out that the bank's own schemes were not guaranteed by the parent company, but by group subsidiaries, which were financially stronger than HBOS.
"HBOS pension trustees and members of the HBOS Scheme can expect to see a strengthening of the supporting covenant when the proposed acqu i s i t i on of HBOS completes," it said.
Lex, Page 28
Shell pension scheme value falls 40% By Ed Crooks and Norma Cohen
Investments in Royal Dutch Shell's Netherlands pension fund have dropped by 40 per cent since the start of the year and the scheme has fallen far short of the regulatory minimum requirement, the company has told employees.
It said in a letter that contributions from some employees and the employer would have to rise. It could need increased investment of billions of pounds to comply with Dutch regula t ions , which demand that schemes in deficit are brought back to asset levels of 105 per cent of liabilities within three years.
Shell will increase its contribution from 5 per cent to 23.6 per cent of pensionable salary.
Although the measures will only affect Dutch pension scheme members, the financing will have an effect on Shell, which is listed in London.
The scheme is now only per cent-funded comp with 180 per cent at the of last year. The Nether has one of the toughest sion funding regimes in world but does not have a pension insurance fund to guarantee benefits for workers whose employer has become insolvent without a fully funded scheme.
The letter was published by royaldutchshell.com, a website used to air complaints against Shell. The letter said that its assets were 70 per cent invested in equities and there was "an above average allocation to emerging markets" , both sectors that have suffered badly in the downturn.
Shell confirmed that the fund had fallen into deficit, but would not say how much more it expected to have to pay in. It is reviewing its investment strategy and has shifted some assets into government bonds.
Shell's UK pension fund shifted out of equities and into bonds in 2007, and remains in surplus.
The company said the deficit would have no effect on current pension payments, but could affect whether workers' pensions kept pace with future inflation.
